Wholesale prices experienced relief last month on the back of lighter manufacturing demand. The PPI fell 0.1% month-over-month (m\/m) while rising 1% year-over-year (y\/y), lighter than projections calling for increases of 0.1% and 1.3% and near November\u2019s -0.1% and 0.8%. The core PPI, which excludes food and energy, was unchanged m\/m while rising 1.8% y\/y, less than expectations of 0.2% and 1.9% and close to the previous month\u2019s 0% and 2%. Price relief was driven primarily by goods, whose prices dropped 0.4% m\/m while services prices were unchanged. Prices for energy, foods, trade services, and transportation and warehousing services dropped 1.2%, 0.9%, 0.8% and 0.4% m\/m, respectively. The other services category did increase 0.4% during the month, however, driven by a 3.3% m\/m increase in prices for securities brokerage, dealing, and investment advice.<\/p>\n\n\n\n Congress is under considerable pressure as the looming threat of a government shutdown rapidly approaches. Speaker Mike Johnson might have to scratch his own bipartisan deal, as he\u2019s under pressure from House budget hawks that don\u2019t like it, adding to the uncertainty surrounding the path lawmakers will take to ensure government funding. The approaching January 19 deadline adds urgency to the situation, making it crucial for a resolution to be reached swiftly.<\/p>\n\n\n\n The US and the UK initiated attacks on Yemen in retaliation to maritime incidents in the Red Sea. The international community’s responses to the strikes on Houthi facilities in Yemen have varied, with Oman in the Middle East expressing disagreement, stating that the actions went against its advice. WTI crude oil was up 3% earlier but has pared most of its sharper gains on concerns of a wider economic slowdown and is now only up 0.3%, or $0.21, to $72.98 per barrel.<\/p>\n\n\n\n Special charges associated with the regional banking debacle have dinged earnings for some of the nation\u2019s largest financial institutions, according to quarterly reports released this morning. At the same time, JPMorgan\u2019s top executive has warned of a potentially challenging economy in the coming months. Highlight from the reports include the following:<\/p>\n\n\n\n Markets are mixed today with a light PPI report supporting optimism for a Fed rate cut and offsetting cautious earnings commentary from the banks amidst continued escalation in the Middle East conflict. Equities are generally lower while bond yields are shifting in bull-steepening fashion. For equities, the cyclically tilted Dow Jones Industrial and Russell 2000 indices are down 0.5% and 0.1%, respectively, while the Nasdaq Composite and S&P 500 are up 0.1% each. Sectoral breadth is split with communication services (+0.7%) and energy (+0.5%) leading the gainers while consumer discretionary (-0.8%) and health care (-0.4%) decline the most. In fixed-income land, the 2- and 10-year Treasuries are experiencing yield declines of 10 and 1 basis points (bps) as the instruments trade at 4.15% and 3.95%. The dollar is roughly unchanged with the US currency gaining against the yuan, pound sterling, and euro while declining relative to the franc, yen and Aussie and Canadian dollars.<\/p>\n\n\n\n With cyclicals and technology shares near all-time highs, earnings reports next week are likely to significantly impact investor sentiment. Today\u2019s commentary from the banks intensified fears of a global economic slowdown, while the manufacturing sensitive PPI came in significantly below expectations. Furthermore, the sharp bull-steepening across the yield curve is narrowing the gap between the 2- and 10-year Treasury maturities, a pattern that is worrisome if it continues. The rapid de-inversion of the yield curve often precedes risk-off shifts in markets. The spread between the two instruments was as low as 108 bps in July, but it has increased to a mere 20 bps and may be signaling economic volatility ahead.<\/p>\n\n\n\n![\"Whole](\"\/campus\/wp-content\/uploads\/sites\/2\/2024\/01\/Picture1-13.png\")
<\/figure>\n\n\n\nShutdown Odds Increase<\/strong><\/h2>\n\n\n\n
Middle East Tensions Persist<\/strong><\/h2>\n\n\n\n
Regional Bank Failures Weigh Upon Money Center Earnings<\/strong><\/h2>\n\n\n\n
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March Cut Odds Rise<\/strong><\/h2>\n\n\n\n
Earnings Season is Pivotal<\/strong><\/h2>\n\n\n\n